Performing the Vending Price Increase - Part 5.
In the previous HK Newsletter articles we discussed how important for the profitability of a Laundromat to keep the Utility Costs under control. We visited an example of the same Laundromat with different Utilities as a Percentage of Gross for an example of Utilities as a 25% and 32% of Revenue. The target percentage is all Utilities between 20 to 25% of the gross revenue of the Laundromat.
This week the Mechanics of Raise your Vend Prices.
From my previous articles, hopefully you realize that you need to bring your vend prices into line with what is a fair and reasonable profit. But how high should I raise my vend prices? How much for each machine? Should I raise my Washers & Dryers at the same time? How do I go about determining what a fair and reasonable vend price? What are the actual mechanics of evaluating & raising my vend prices?
My first task is to visit all of my competitors and make accurate records of their different sized washers & dryers. I record all of the vend prices including the "Special Prices" and "Extra Feature" prices for all of the laundry equipment. If I meet the owner of the store, then I will offer to buy him a cup of coffee. I will explain that I am in the process of raising my vend prices to offset the increases in utility costs. Hopefully this opens up a conversation to discuss the Laundromat business. My Laundromat competitor is my neighbor, one that I may not have to like but a neighbor that I have to co-exist with and respect. Who knows, maybe he will call me when he is looking to sell his store. I eventually end my conversation with the assurance that I will be raising my prices, I will let him know when I do and hopefully he will raise his prices too.
I have been in the laundry business too long to think that my competitor is going to go out of business. So my approach is not beat him, but be friendly, respectful and form a mutual respect for both of our operations, and (most important) to make money. I have seen the "dumb operator" who takes his Laundromat's competition "personally" and vows to bankrupt them out of business. Well it just is not going to happen. Any business man, who just invested $100-200,000 into a business, will accept a slow start and do what ever he thinks he has to do, to make a living. The investor will even tolerate monthly losses rather than walk away from the sizable investment. When a new competitor comes into the market place, each slice of the pie gets smaller. The question is how does everyone survive? By cutting the vend price? NO. Everyone can make a decent living if each slice of the pie is worth more. Yes, by raising your vend price, you survive and so does your competitor; but you both make money. (What is wrong with that?)
Once I know my competitors vend prices, I then have to look at my own numbers. What are my utilities as a percent of Gross Income? Traditionally a well operated all front load Laundromat would have 20% utilities and an all Top Load Laundromat would be in the 30% range. This went out the window in 2005 when we had a tripling in the cost of Natural Gas. Now even with the most energy efficient front load Laundromats our target is between 20-25% utilities as a percent of gross income.
In this example, my target is to have my utilities be 25% of the Gross Income. In today's reality, you need to be flexible and maybe you can't get to the projected target figure in the first price increase. You need to be realistic and look at your market place and then set your target pricing. Can you be $2.00 higher on your vend prices than the competitor next door...probably not. But you can be several quarters higher and still make a decent return on your investment.
Please note that the Laundromat "Gross Income" figure is only the self-service washer & dryer income. This excludes any revenue from soap, over the counter sales and vending machine income. We only want to look at the utility costs and the revenue from the washers & dryers. We also need to include the revenue for the machines being used in the Wash, Dry & Fold process. The easiest way to handle this is to add up the attendant's cost to start the machines. This may already be in the money boxes, especially if you use nail polish to paint the coins you provide for your attendants. We need to account for the WD&F revenue (to operated these machines) and add this figure to the Laundromat's "Gross Income".
Once we have established our true utilities as a percentage of "Gross Income" we have to ask what is the new Gross Income (dollar amount) do I need to reach to achieve a 25% utilities? What is the dollar difference between where I currently am and where I want to be? What percentage increase across the board to achieve my target percentage? See the attached example of a 20 washer and 20 pocket dryer Laundromat.
(Article to be continued Next Week)
Determining Current Utilities Percentage:
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